A Tale of Two Health Care Plans

It was the best of plans, it was the worst of plans.

Everyone agrees that Medicare has to be changed. Why? Put simply, it’s not paying for itself. Outlays are already greater than payroll tax receipts, and a combination of demographics, economics, and technology are expected to make the gap balloon. Over the next ten years, the deficit in Medicare funding is expected to average $340 billion annually, in an economy that should average about $19 trillion. In other words, the funding gap qill be almost 2% of the economy, apart from the additional 2% in Medicare spending. This is not sustainable.

There are two basic approaches to dealing with medical costs. The current law calls for a government-sponsored board of experts to approve or disapprove certain treatments. The Board would be given budget targets and would make recommendations for cost control that would go into effect unless Congress intervenes. Cont control would come from the top down.

The Republican alternative would replace direct payments to providers with health-care vouchers. Taking a page out of Milton Friedman’s book, they propose to devolve cost-control to the consumer, mediated through insurance companies. Consumers would supposedly be able to decide what level of care they want, or can afford. Government payments would be limited.

It’s an honest debate: consumers versus experts. It gets at the heart of the problem. What’s not responsible is to pretend the problem isn’t there, and kick the can down the road.

Douglas R. Tengdin, CFA
Chief Investment Officer
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